RIYADH: The Saudi stock exchange, Tadawul, has been upgraded to the status of an emerging market by global index provider MSCI, a step expected to lure billions of dollars in foreign investments.

The decision, announced late on Wednesday, is the second key development for Tadawul, the largest Arab stock market with capitalisation of over $525 billion, after the global FTSE Russell index granted it secondary emerging market status in March.

MSCI, in which the UAE and Qatari bourses are already included, will also cover Tadawul in two phases starting from June 2019, it said in a statement.

Mohammed el-Kuwaiz, chairman of the Capital Market Authority (CMA), the government’s regulatory body for the sector, said the decision will expand liquidity base in the Saudi bourse. “The inclusion decision shall enhance the diversity of the investors’ base as well as the liquidity of the Saudi Capital Market,” Kuwaiz said in a statement posted on Tadawul’s website.

“We, at the CMA, will continue to further develop the Saudi Capital Market to ensure that the market facilitates investments, promotes confidence and protects investor and market participants,” he said.

Economic think-tanks and consultants estimate that the MSCI and FTSE Russell decisions are expected to lure billions of dollars of foreign investments, with London-based Capital Economics putting the figure at around $40bn.

“Inclusion in the MSCI Emerging Market Index is an important milestone and further affirmation of the tremendous progress Tadawul has made in the past year,” said its CEO, Khalid al-Hussan. The move follows a series of stock market reforms by Tadawul and its regulator, the Saudi Capital Market Authority, to make it easier for foreigners to invest.

In 2015, Tadawul introduced a programme allowing large international institutions to invest on the market.

Since then, 120 international financial institutions have joined Tadawul and 180 others are in the process of joining, Tadawul said in March.

Saudi authorities say they plan to sell up to five percent of oil giant Aramco within the next 12 months.

A portion of those shares will be listed domestically. Allowing foreign funds into the Saudi stock market will facilitate the sale of the planned IPO.

Published in Dawn, June 22nd, 2018